Aave Faces $6 Billion Deposit Exodus After Kelp Hack Exposes DeFi Vulnerabilities

Aave has witnessed a staggering $6.6 billion exodus, not due to a direct hack, but as a result of a structural risk exposure. The protocol's total value locked plummeted from $26.4 billion to nearly $20 billion, with the AAVE token falling 16% to $92 and daily fees surging to $1.99 million amidst a wave of liquidations over the weekend. Depositors are fleeing because Aave is shouldering a burden it did not create, stemming from the exploitation of Kelp's bridge, which led to the theft of 116,500 rsETH. This stolen collateral was then used to borrow wrapped ether on Aave V3, with on-chain trackers estimating the Aave-specific borrow to be around $196 million. As the largest lending protocol in DeFi, Aave enables users to deposit crypto to earn yield, while others borrow against collateral. However, the recent hack has highlighted the risks associated with accepting liquid restaking tokens as collateral, particularly when their backing can vanish due to exploits on external bridges. Aave's founder, Stani Kulechov, has stated that the exploit was external and the protocol's contracts were not compromised, but the incident has raised concerns about the fragility of the DeFi system and the potential contagion risk posed by Aave.